11 September 2006

The Challenge of Democracy

Why is the United States of America so much more prosperous than other countries? It's an interesting and important question -- and one which I believe I've found the answer to. The paradoxical answer is two-fold: freedom and law.

Freedom is an obvious requirement for widespread prosperity. Freedom to open a business, to hire and fire workers, to travel freely, to enter contracts, to better oneself through education, to take a job or leave a job, to choose a government, and to influence its policies. Even in this brief list you may notice things that people in America are not completely free to do, like firing employees. Nevertheless, on the whole, and in comparison to most of the rest of the world, the United States is remarkably free and has been for a long time.

The role of law may be less obvious, but it may be even more critical. If laws are not strong and strongly enforced then the business environment suffers horribly. Contracts can't be enforced, so people won't enter into them. Government corruption should be included as a case of weak law. If one's business is too successful, the corrupt officials or dictators may simply take it. (Something like this happened to a large oil company in Russia not long ago.) And, property law is very important. Economist Hernando de Soto of Peru has done alot of work showing how important property law is to the economy. Americans often take for granted their system of property law. In many poor countries, people don't hold titles to the land they live on. This makes it impossible for them to get a loan against it, for example.

Thanks to Tom Bethel for writing in The American Spectator on this subject on more than one occasion. Above, I've just given my own brief recapitulation of what I learned from his articles. But, what I really want to talk about is what this means to the rest of the world. The secret is out, as it were. (And, my own prior obliviousness notwithstanding, must have been known for a long time to people who asked the question.) Why doesn't every country imitate America's methods? Wouldn't they like to be prosperous as well? Granted, you can't just declare "freedom and law" on Monday and be wealthy on Tuesday. It takes a long time to build up the institutions necessary to support a free and fair legal and political system. But, clearly, many poor countries are not trying to become more free and just. Why not?

I think the answer is simply that the people currently in power in these other countries are just fine with how things are. They don't want to give up any of their own power. It's shocking to think that -- that people are dying and toiling in dire poverty and the elite of the country just don't care and haven't the smallest interest in changing their system. But, what other conclusion can we draw?

If the people with all of the money and all of the power and almost all of the guns in some country are adamantly against freedom and democracy, what chance does it really have? Not very much. If the country is poor enough and the government absolutist enough, there can't be much opportunity for internal change.